Market Talk- November 30, 2017

The tech sector took the label of responsibility overnight in Asia for the reason given for most declines. The Hang Seng suffered the most falling near 1.5% following Wednesday price action in the NASDAQ. Even Shanghai lost 0.6% which was a surprise given the promising PMI print (51.8% against a consensus of 51.4%). Energy and commodity prices drifted even weaker today which hurt the Australian ASX index (-0.7%). In Japan the Nikkei rejected these moves, taking the moral high ground and rallied as exporters performed with a declining Yen.

The calendar took the blame for stock declines in Europe today cutting losses for the month. The broad European index returned a net loss with only a claim of currency appreciation lending a helping hand. All core markets closed down around -0.4% with the UK’s FTSE down near 1%. Even with the initial early US strength European indices were trading heavy. However, the real storey for the day was the US markets so lets just jump straight to those events.

US session opened strong and really moved from strength to strength. Obviously, the talk that Senator McCain would support Senate Tax Bill really lit the fuse for todays wild bull run. Within minutes the DOW had rallied over 250 points on top of the 150 already achieved. Significantly breaking the 24k level we watched a 1%+ day unfold. Today moves shows that many had not priced the tax news in which is making the FED decision ever more easier. Economic data out earlier also supported this positive stock move after Jobless claims a little better 238k, PCE 1.4% inline and small downward revision despite market levels and savings rate +3.2%. Numbers look to be holding-up ok but could be interesting to see auto sales later. Still talk of the 20% corporate tax rate but the late headline that the JCT score is lower than many Republicans would like to see would support todays rally in the VIX index. Worth keeping a close eye on the VIX as it is portraying a different storey than that of the headline. The forwards contracts are pre Christmas so probably not quite the news or interest that warrants the headlines.

2’s closed 1.79% (+2bp), 10’s 2.43% (+5bp), 30’s 2.85% (+3bp), Bunds 0.36% (-3bp), France 0.68% (-3bp), Greece 5.26% (+3bp), Turkey 11.98% (-29bp), Portugal 1.85% (-6bp), Spain 1.43% (-5bp), and Gilts 1.33% (-1bp). It will be interesting to see how the bond markets reacts tomorrow to the US’s rally! You have to question the logic for how far a flight to quality could go against the flow of capital, but maybe they are simply not seeing the bigger picture.

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